Indiana Bankruptcy Blog-Will I lose my House if I file a Bankruptcy in Indiana?

          Understandably, one of the most common bankruptcy questions I hear is, "Will I lose my house?"  The answer, like most answers given by bankruptcy attorneys is, it depends.

          This question is asked so often that I wanted to try to address it on Indiana Bankruptcy Blog.  However, no two people that I meet with have the same circumstances, so I will do my best to give generalizations about when a person risks losing their house by filing a bankruptcy.  As always, this information is not intended to be relied upon and cannot replace the advice of an experienced bankruptcy attorney.

CHAPTER 7

         In a Chapter 7 Bankruptcy your home loan is included in the bankruptcy petition and each debtor states in his or her bankruptcy petition whether he or she intends to reaffirm or surrender the home (there are more options, but for the purposes of this blog I want to simplify it).  If the debtor was current on their home at the time of filing the bankruptcy the most likely option is that the debtor reaffirms the house.  To reaffirm means that even though the debtor could walk away from the home in the bankruptcy and get out from under the debt that he or she has chosen to keep it.  By reaffirming, the debtor signs a contract that states that they would like to keep the home, that they can afford to make the payment and that if they fall behind again in the future and the bank forecloses that they are again liable for any deficiency.  The Court will typically approve these agreements so long as the house is not very upside down (to be upside down means to owe more on the mortgage than the home is worth) and the debtor's bankruptcy schedules show that the debtors can afford the payment.  If the debtor states that he or she wants to surrender the house, it means that he or she walks away from the house, it will typically continue through the foreclosure process, and the debtor is no longer liable for the mortgage debt.

         If a debtor is behind on his or her mortgage payments at the time of filing a Chapter 7 Bankruptcy then the lender will likely ask to lift the automatic stay in bankruptcy.  Asking to lift the automatic stay is the lender asking the Bankruptcy Court for permission to continue with (or begin) the foreclosure process in state court.  The lender needs to ask the Court for permission because the automatic stay is a protection that typically goes into effect when a bankruptcy is filed dictating that creditors are not to attempt to collect from the debtor(s) and stops foreclosure proceedings.  The Court will typically grant the lender's motion to lift the automatic stay if the debtor(s) is behind on the mortgage payments. Therefore, if a debtor wants to keep his or her house and is behind on the mortgage it is usually not a good idea to file a Chapter 7 bankruptcy unless the debtor can obtain funds from another source (retirement, family, etc.) to catch up the mortgage.  A debtor who is unable to bring the mortgage current is at risk of losing their home in a Chapter 7 bankruptcy.

CHAPTER 13

      Chapter 13 Bankruptcy is an invaluable tool for homeowners who are behind on their mortgage, but have income sufficient to pay the mortgage arrearage back over time.  A Chapter 13 bankruptcy allows a debtor to make payments over 3 to 5 years to repay their creditors, including their mortgage lender.  A few of the benefits of a Chapter 13 with respect to catching up a mortgage are that: 1) the lender can't deny you the repayment plan so long as the repayment plan has been approved by the bankruptcy court, 2) there are no more late fees being incurred on the mortgage in a Chapter 13, and 3) there is no additional interest being charged on the arrearage in a Chapter 13.  I have had clients who were a year or more behind on their mortgage bring it current through a Chapter 13 repayment plan.

      In any type of Bankruptcy, the goal is to keep the home of those debtors who wish to remain in the home.  There is, however, a hard truth that I have had to tell a few clients.  This truth is that if you don't have enough income to make a house payment and pay your normal living expenses and you don't anticipate a way to either bring in more money or reduce expenses, a bankruptcy will not help you in the end.  The bottom line is that, unless you have a plan to change whatever it was that caused you to get behind on your mortgage payment (and I understand that reason is often outside the control of the debtor) then a bankruptcy will only delay the inevitable.  Bankruptcy can buy time and give tools to aid debtors in overcoming debt, but it is not a magic wand to create income.  In situations where a house is truly outside the means of the debtor(s) I advise debtors that your home is where you live with you and your family, while a house is only brick or wood.  Letting a house go that is putting a financial strain on the debtor can allow more money for family activities, reduce stress and greatly improve the quality of a debtor's life.  

     If you are behind on your house payments and want to see if Bankruptcy is a tool that you can use to get current please feel free to contact me.  I offer a free initial bankruptcy consultation to those in Indiana.  To those in Indianapolis, Fishers, Carmel, Noblesville, Westfield, Tipton, Lebanon, Anderson, Kokomo, and anyone else living in the greater Indianapolis area, feel free to give me a call at 317-575-8222.

    

Halcomb Singler, LLP, is a debt relief agency.  It helps people file for bankruptcy under the bankruptcy code.  No attorney-client relationship with the firm of Halcomb Singler, LLP, is created through this blog. Also, please note that Erika Singler is an attorney licensed in Indiana and does not seek to practice law in any jurisdiction in which they are not properly authorized to do so.  The information contained in this blog is general in nature and should not be relied upon for the circumstances of any individual(s) or businesses.